Recent global crises have roiled the world financial markets, highlighting the true underlying weaknesses in both financial stability and failed risk management practices. This has been a hard lesson to learn, but the most important lesson is how to prevent crises from repeating. In this book, I establish a methodology to assess risk and conclude with mitigation-oriented policy recommendations. The first chapter presents a financial scoring model using estimates from Central European corporate accounting data, which is then used to construct an aggregate indicator of the creditworthiness of the corporate sector (named the JT index). The second chapter focuses on modeling the operational risk of economic capital for a Central European Bank. The third chapter deals with the 2008/2009 crisis in more detail, discussing the history, macroeconomic conditions, and milestones of the US mortgage crisis. I also describe key investment banking and risk management practices that exacerbated the impact of the crisis and conclude with four suggested policies to protect against repeating these errors and limiting future risk exposure.
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